We find that the underperformance of IPO stocks relative to the market over a three‐year holding period is less severe for
IPOs handled by more prestigious underwriters. Consistent with prior studies, we also find that IPOs managed by more reputable
underwriters are associated with less short‐run underpricing. Among the various existing proxies for underwriter reputation,
the Carter–Manaster measure is the most significant in the context of initial returns and also in the context of the three‐year
performance of IPOs. The study also provides an updated list of the Carter–Manaster measure for various underwriters.